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Nestlé Purina Petcare : company profile

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Nestlé is serious about being the world's leading food company: it wants to be #1 in pet food too, with brands including Purina, Friskies, Felix and Alpo. In 2000 the group announced the acquisition of Ralston Purina, then America's foremost pet food business. Once a mammoth conglomerate with interests ranging from pet food and grocery products to batteries and ice hockey, Ralston Purina had undergone a gradual dismantling since the late 1980s. Merged with Nestlé's existing Friskies business to form Nestlé Purina, the company now sits just behind Mars in global cat and dog food, but is the clear leader in the US. It is also a major force within Nestlé, generating around 12% of group sales and 15% of profits.

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Competitors

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Brands & Activities

The acquisition of Purina capped Nestlé's rapid growth in the pet food sector, from rank outsider to challenger for Mars' global #1 position in just two decades. The group has strong positions in most key segments of wet and dry foods, as well as in top-end premium nutrition products. It is a close #2 to Mars in global pet food, with an estimated 23.1% global share (Euromonitor). In the US, though, it is the clear overall leader, with 32.4% share in 2014: as much as the next three competitors combined. It is #2 in Europe behind Mars.

The acquisition of Purina created an important core to Nestlé's global petcare business, previously a force mainly in Europe. North America now accounts for more than half of Nestlé's petcare revenues. According to figures from IRI (52 weeks to Jan 2017, all retail channels, Grocery HQ), it had a commanding lead in the US dry dog food segment, worth a combined total of over $5bn in annual sales. Nestle accounted for almost 44% of that figure, or over $2.2bn (more than $1bn higher than Mars). It was the clear leader in dry cat food too, with almost 57% share, and sales of $1.3bn. Nestle was even more dominant in wet cat food, with 78% share and sales of $1.6bn. In wet dog food, though, it ceded leadership to Mars, with 32% share and sales of $488m. Similarly it was #2 in dog snacks behind Big Heart Pet Brands, with only 19% share and sales of $447m. Share of the much smaller cat snacks segment was 25%, worth $138m, behind leader Mars. An entirely independent company, Purina Mills, continues to market equine nutrition and related products under license.

Nestlé Purina manages an extensive collection of different brands. In the US its products for dogs include Alpo, Beneful, Dog Chow, Mighty Dog, HiPro, Kibbles & Chunks, Moist & Meaty and premium gourmet brand Chef Michael's. The Dog Chow brand received a healthy promotional push in 2008 and 2009 from the movie Marley & Me, in which it was featured, a fact which helped sales to grow by more than 20% during the latter year. Dog/Puppy Chow and Beneful both have sales of over $900m, while Alpo is over $500m. There is also a sizeable selection of treats and snacks including Beggin' Strips, Busy, Cheweez, T-Bonz and Carvers. The treats category, in particular, is one in which the company has invested heavily in recent years to narrow the gap with sector leader Del Monte. Nestle acquired independently owned Waggin Train dog snacks in 2010, Zuke's in 2014 and Merrick natural and organic petfoods in 2015.

The company's cat brands include top-sellers Friskies and Fancy Feast (both with sales over $900m), followed by Cat Chow, Deli-Cat and Kit 'n Kaboodle. Two premium brands offer a range of foods for both animals: Purina ONE (also with sales of more than $1bn worldwide), and breeders' favourite ProPlan, a super-premium science diet brand for both animals. The group is also the leader in the litter sector, with a 32% share, with the Tidy Cats and Yesterday's News brands for cats, and SecondNature for dogs. In 2007 the group agreed a partnership with Japanese manufacturer UniCharm to market the latter's cat litter system in North America under license. This was launched in the US in 2008 as Breeze from Tidy Cats.

Outside the US, the company's products are distributed in 75 countries by Nestlé Pet Products International. The offering in each country varies slightly. The two premium brands Purina One and Pro Plan are available in most global markets, supported by Dog Chow and Cat Chow and a mix of regional or local brands. Beneful has been rolled out successfully as a global brand since 2005. Europe is Nestlé's main market outside the US. It is in fact a bigger pet-owning region than North America, with more dogs and cats, but a much lower penetration of commercial petfood products. (Penetration of commercial petfoods is 80% in North America, compared to 50% in Western Europe, and much less is southern, central and eastern European markets).

Europe accounts for around a third of Nestlé's global petcare business, and the group is the #2 player in the region with around 23% share, behind Mars's 40%. The two biggest markets are the UK and France. In the UK, it had almost 22% share in 2011 (Euromonitor) behind Mars' 32%. Felix overtook arch-rival Whiskas in 2014 to become the #1 cat food (or indeed any sort of pet food) overall in the UK. Sales were £245m (Nielsen, ye Dec 2016, The Grocer) to Whiskas' £186m. It was supported by Gourmet (approx £75m ye Aug 2016, IRI) and Go Cat (£55m). Baker's Complete is the company's lead dog food, #2 behind Mars's Pedigree. IRi estimated supermarket sales of £97m for Baker's (ye Aug 2016), and around £30m for Winalot. The company also markets traditional local dog snack Bonio. In 2018, the company acquired direct-to-consumer bespoke petfood service Tails.com.

Felix, Friskies and Gourmet Gold are widely available elsewhere in Europe. Other important local brands in the region include Fido and Excellent for dogs in France; Doko and Matzinger for dogs in Germany; Pussi and Tonus for cats in Scandinavia.

Penetration of both pet-ownership and commercially produced petfoods is considerably lower in Latin America and Asia. In Latin America, Nestlé Purina is a strong #2 with around 22% share, behind Mars (with 25%). The company claims local leadership in several countries including Argentina and Colombia, but sits behind Mars in Brazil. In addition to the main Purina brands, products include Dogui and Gati in Argentina, Gatsy and Bonzo in Brazil. The Asia Pacific region is even smaller. Again, the main international brands are present, and Bonnie (made from kangaroo and chicken meat) is a leading local dog food brand in Australia. The group tentatively re-entered the difficult Japanese market in 2003, with a number of local and international brands.

Financials

Nestlé Petcare generated total revenues of CHF 12.07bn ($12.3bn) in 2016. Operating profit was CHF 2.54bn ($2.6bn), a margin of 21%, making it the single most lucrative division in the group. The US business is the biggest market by far, accounting for around $7bn.

Background

In the final decade of the 19th century would-be entrepreneur William Danforth joined with two friends, George Robinson and William Andrews, to form the Robinson-Danforth Commission, a horse and mule feed business. The partners set out to market a cereal-based animal feed that was, they claimed, "cheaper than oats and safer than corn". (In fact it was just a mix of corn, oats and molasses mixed together manually with shovels). In the rapidly expanding agricultural economy of the time, the company prospered.

Cereals were becoming big business in the closing years of the century, following the sudden popularity of John Kellogg's new formula for healthy eating. When the cereal market exploded in Battle Creek, Michigan, many companies followed in the wake of Kellogg's and arch-rival Post in developing cereal recipes for human consumption. In 1898 Will Danforth bought rights to a process for making cracked wheat, which he marketed as Purina Whole Wheat Cereal. A year later he teamed up with Dr Everett Ralston, a health guru like Kellogg who had built a profitable business from advocating healthy eating. The two struck a deal to market the cracked wheat under Ralston's name, with considerable success. In 1902, the company officially changed its name to The Ralston Purina Company.

In the years that followed, the company diversified into different sorts of wheat and flour for home use, alongside the thriving animal feed business. Danforth spent World War I in Europe with the US army. Returning home he decided to change the branding of the animal business, adopting the slang word he had heard soldiers use for food. From 1915, the company's clinical-sounding "Purina Animal Feed" was renamed Purina Chow.

In 1926, Danforth's son Donald, who had joined the business six years earlier, set up the world's first nutritional research centre for animal foods, the Purina Pet Care Center. The same year the company developed a line of Chow designed for working farm dogs. This was sold alongside the company's horse feed through rural dealers. However, there was still no such thing as pet food for domestic household animals, which were generally fed on table scraps. Ten years later, Forrest Mars began developing a line of prepared dog food in the UK, and Friskies dry dog food was launched in the US by Carnation the same year. However, few companies thought it would turn into a big business. Meanwhile, Ralston Purina was expanding rapidly under Donald Danforth, who took over the business in 1930, adding new milling factories throughout the United States. In 1937, the company introduced a new cereal brand for humans, Chex (eventually sold to General Mills 60 years later). Yet despite the comparative success of its household cereals, it was animal feed that remained the core of the business. During 1942, the company sold a million tons of Chow for the first time. By 1947, the Purina Chow brand accounted for $190m of the company's $208m total revenues.

In the prosperity of the post-war era, the idea of prepared pet food for household pets finally began to take off. Ralston Purina was comparatively late into the market when it introduced dry Purina Dog Chow in 1957, after almost seven years of research and testing. However within two years, it had become the leading dry dog food in the US, overtaking rival product Gaines. The company established a new grocery products division, selling Dog Chow alongside its family cereals to grocery stores in towns and cities. At the same time the company ventured outside the US for the first time, establishing operations in Mexico.

The company expanded dramatically after going public in 1962. It acquired a string of other businesses including Van Camp Seafood in 1963, restaurants Foodmaker and Jack-In-The-Box in 1968, and the Keystone ski resort in 1969. In 1966, group sales topped $1bn, with the biggest increases coming from the grocery products division. Meanwhile the original agricultural products division, selling animal feed for farm use, began to play an ever smaller part in the company's development. In the 1970s the group acquired the St Louis Blues hockey team as well as flower-growing and mushroom-farming operations. In 1971, the company moved into cat food for the first time with the introduction of the Tender Vittles brand.

During the 1980s, the group underwent its most dramatic restructuring. Foodmaker, Van Camp and the St Louis Blues were all sold, as well as the entire Purina Mills US animal feed business (to BP). Instead the group acquired Continental Baking Company, the largest US wholesale fresh bakery in 1984. Two years later Ralston paid Union Carbide Corporation $1.4bn for its Eveready and Energizer battery products operations. It was Ralston Purina which introduced the world in 1989 to the Energizer Bunny, who went on to become one of the best-known advertising icons of the 1990s. Also that year, the group bought babyfood business Beech-Nut (from Nestlé). Ralston was restructured as a holding company, with Continental Baking Company, Eveready Battery Company, Ralston Purina International, Ralston Purina Grocery Products, and soy protein manufacturer Protein Technologies International as independent subsidiaries.

The decentralisation process continued during the 1990s as different parts of the business were spun off as separate businesses. Continental Baking Group was the first to separate, partially spun off in 1993. A year later Ralston’s cereal business, the Keystone and Breckenridge ski resorts, Bremner Biscuit Company and Beech-Nut Nutrition Corporation were all spun off as Ralcorp Holdings, and the group's core grocery products division was renamed Ralston Purina Pet Products Group. In 1995, the Company acquired Golden Cat Corporation (now Golden Products), a leading marketer of cat litter. The Company sold the rest of Continental Baking to Interstate Bakeries in 1996 in return for a substantial stake in the bigger company. In 1998, the company’s international agricultural animal feeds business was spun off as Agribrands International. A year later, the Eveready Battery Company was spun off to shareholders as Energizer Holdings, leaving Ralston Purina Pet Products as the rump of the business.

While Ralston Purina was gradually slimming down to become solely a pet foods company, Nestlé was building up its own rival business from scratch. The group had entered the pet food sector for the first time in 1985 when it acquired the Friskies brand as part of its then-massive $3bn purchase of Carnation Group. Carnation had introduced Friskies as a dry dog food in 1934, subsequently launching a cat food equivalent in 1958. The brand was launched in Europe and Asia in the 1960s, and in the following decade Carnation launched new brands including Mighty Dog (1973) and Fancy Feast for cats (1982).

Following the acquisition by Nestlé, Friskies gradually became the core brand within a new petfood unit, and the group supported it with a series of other acquisitions. It acquired US dog and cat brand Alpo in 1994, followed by Venezuelan brand Perrarina in 1997. In 1998, the group paid $1.2bn to buy Spillers Petfoods, the largest business within UK conglomerate Dalgety. The British company had itself bought Spillers three years earlier from Quaker Oats in an attempt to overtake Mars' Pedigree and Whiskas brands. Nestlé further bolstered its Latin American pet food business with the purchase of Argentina's Cargill pet foods group in 2000.

The acquisition of Ralston Purina was a logical step in the group's development of its pet food business. Nestlé paid $10.3bn for the business, adding Ralston Purina's leading position in the US market, and in dog food generally, to its own largely cat-oriented portfolio. Ralston Purina had North American sales of more than $2.3bn in 2000, and international sales of almost $450m. Nestlé's Friskies division was larger, with worldwide sales of around $3.7bn in 2000. After almost a year of deliberation, the deal was finally cleared by US regulators in December 2001, and the two businesses were gradually merged in each global territory.

In 2007, Nestlé Purina was one of many petfood manufacturers in the US forced to issue a recall of products containing contaminated wheat gluten imported from China, and produced under contract by private label company Menu Foods. A number of animals died from eating "wet" gravy-based foods, and others were made ill. The only two Nestlé Purina brands affected were limited quantities of Mighty Dog and Alpo Prime Cuts.

Last full revision 5th July 2017

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